ANALYSIS: Over the past year and a half, the net migration gain for New Zealand has fallen from a record 135,000 to just 21,000. This is below the 10-year average of 50,000 and suggests a less-than-average level of demand for housing. This is seen most clearly in the rental market.
The monthly survey of property investors I run with Crockers Property Management showed 14 months ago that a net 25% of landlords found it easy to get a good tenant. Now, a record net 40% say it is hard.
The relative dearth of tenants, however, reflects more than just slow population growth. There is also the issue that many developers are holding large numbers of townhouses. They can’t sell them, so they are trying to find people to rent them. Add in the accommodation not needed for foreign visitors, because tourist inflows are still below pre-pandemic levels, and we get to the current situation.
That situation also involves slower rent growth. A year ago, a net 82% of landlords said they planned to raise their rents; now, a net 44% plan to do so. The average rent rise sought has also fallen from 5.6% to 4.2%.
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Taking into account the hikes in some of the key costs of providing rental accommodation – insurance, rates, maintenance – it shouldn't be surprising that many investors are looking to sell. The trouble for them, however, is that just because mortgage rates have fallen over 2% does not mean buyers are flooding into the market.
Buyers have above-average worries about their jobs and know that the market is firmly in their favour. Property listings are at their highest levels since 2015, and there is almost no FOMO in the market.
Returning to the net migration data discussed above, if we focus just on Kiwi citizens then there is a large net loss recorded for the past year of about 45,000 people. The chances are good that if we had data on the house-buying ability and willingness of the flows in and out, then we would find at the moment that, despite a still positive net migration gain of 21,000, our home-buying gauge would be negative.
Independent economist Tony Alexander: "Buyers have above-average worries about their jobs and know that the market is firmly in their favour." Photo / Fiona Goodall
That is, we are losing home-buyers and gaining renters – though clearly not enough renters. And if they are like Kiwis going to the UK or Australia, they are probably cramming more people in per household than the nationwide average.
With house prices now having fallen for three months in a row, can we yet start to take a strong position on when a sustained period of price gains may occur and when the balance of power will shift firmly back to the vendors? Not really.
But if I had to take a stab at it, I’d pick perhaps from the second half of next year. I’d pick earlier than that were it not for one particular thing happening: the number of consents for new dwellings running at a relatively high level.
This means more houses, and more should be expected as the government makes changes aimed explicitly at boosting supply. For the country overall, this is a good situation. The period from 1992 to now, when average house prices rose 6.3% per annum, produced a large jump in average house prices versus incomes, much purchasing of housing as an investment, and outright encouragement to our young people to shift offshore. From here on out, an assumption of average yearly price gains near 5% at best would seem warranted.
- Tony Alexander is an independent economics commentator. Additional commentary from him can be found at www.tonyalexander.nz
